1) A transfer agent keeps stockholder records and prepares official lists of stockholders
and dividend payments.
2) The materiality constraint permits the use of the direct write-off method of
accounting for uncollectible accounts when bad debts are very large in relation to a
company’s other financial statement items such as sales and net income.
3) Cumulative preferred stock has a right to be paid both current and prior periods’
unpaid dividends before any dividend is paid to common shareholders.
4) A company’s cost of goods sold was $15,500 and its average merchandise inventory
was $4,500. Its inventory turnover equals 3.4.
5) The profit margin ratio is gross margin divided by total assets.
6) The gain or loss from retirement of debt is reported under cash flows from operating
activities on the statement of cash flows using the direct method.
7) The owner’s withdrawal account normally has a credit balance since it is an equity
account.
8) Financial statement analysis is the application of analytical tools to general-purpose
financial statements and related data for making business decisions.
9) On the work sheet, net income is entered in the Income Statement Credit column as
well as the Balance Sheet or Statement of Owner’s Equity Debit column.
10) Costs incurred during an accounting period but unpaid and unrecorded are accrued
expenses.
11) Merchandise inventory consists of products that a company acquires to resell to
customers.
12) If in preparing a work sheet an adjusted trial balance amount is mistakenly sorted to
the wrong work sheet column. The Balance Sheet columns will balance on completing
the work sheet but with the wrong net income, if the amount sorted in error is:
A.An expense amount placed in the Balance Sheet Credit column
B.A revenue amount placed in the Balance Sheet Debit column
C.A liability amount placed in the Income Statement Credit column
D.An asset amount placed in the Balance Sheet Credit column
E.A liability amount placed in the Balance Sheet Debit column
13) Docksider Boats uses a job order cost accounting system. During one month
Docksider purchased $153,000 of raw materials on credit; issued materials to
production of $164,000 of which $24,000 were indirect. Docksider incurred a factory
payroll of $95,000, paid in cash, of which $25,000 is classified as indirect labor.
Docksider uses a predetermined overhead application rate of 170% of direct labor cost.
The journal entry to record the allocation of factory payroll to production is:
A.Debit Goods in Process Inventory $95,000; credit Factory Payroll $95,000
B.Debit Goods in Process Inventory $95,000; credit Cash $95,000
C.Debit Factory Payroll $95,000; credit Cash $95,000
D.Debit Goods in Process Inventory $70,000; debit Factory Overhead $25,000; credit
Factory Payroll $95,000
E.Debit Goods in Process Inventory $70,000; debit Factory Overhead $25,000; credit
Cash $95,000
14) Comprehensive income includes
A.Revenues and expenses reported in the income statement
B.Gains and losses reported in the income statement
C.Unrealized gains and losses on long-term available-for-sale securities
D.All changes in equity for a period except those due to investments and distributions
to owners
E.All of these
15) Match the following terms with the appropriate definition.
1>Classified balance sheet A. The owner’s claim on the assets of a company.
2>Unclassified balance sheet B. Tangible long-lived assets used to produce or sell
products or services.
3>Intangible assets C. Cash or other assets that are expected to be sold, collected, or
used within one year or the company’s operating cycle whichever is longer.
4>Plant assets D. Entries recorded at the end of each accounting period to transfer
end-of-period balances in revenue, expense, and withdrawals accounts to the permanent
owner’s capital account.
5>Current assets E. Long-term assets used to produce or sell products or services; these
assets usually lack physical form and their benefits are uncertain.
6>Current ratio F. Assets such as notes receivable or investments in stocks which are
held for the longer of one year or the operating cycle of the company.
7>Owner’s capital G. A balance sheet that organizes the assets and liabilities into
important subgroups.
8>Closing entries H. Debts that are due to be paid or settled within one year or the
operating cycle of a business whichever is longer.
9>Long-term investments I. A balance sheet that broadly groups assets, liabilities and
equity items.
10>Current liabilities J. A ratio that is used to help evaluate a company’s ability to pay
its short-term obligations, calculated by dividing current assets by current liabilities.
16) The common-size percent is computed by:
A.Dividing the analysis amount by the base amount
B.Dividing the base amount by the analysis amount
C.Dividing the analysis amount by the base amount and multiplying the result by 100
D.Dividing the base amount by the analysis amount and multiplying the result by 1,000
E.Subtracting the base amount from the analysis amount and multiplying the result by
100
17) A type of production that yields customized products or services for each customer
is called:
A.Customer orientation production
B.Job order production
C.Just-in-time production
D.Job lot production
E.Process production
18) A company purchases merchandise with a catalog price of $20,000. The company
receives a 35% trade discount from the seller. The seller also offers credit terms of 2/10,
n/30. Assuming no returns were made and that payment was made on time, what is the
net cost of the merchandise?
A.$13,720.
B.$19,600.
C.$6,860.
D.$13,000.
E.$12,740.
19) Guidelines (rules-of-thumb) are developed from:
A.Industry statistics from the government
B.Past experience
C.Analysis of competitors
D.Relations between financial items
E.Dun and Bradstreet
20) The manufacturing statement is divided into four parts consisting of all of the
following except:
A.Direct materials
B.Computation of cost of goods sold
C.Overhead
D.Computation of cost of goods manufactured
E.Direct labor
21) Ecology Co. sells a biodegradable product called Dissol and has predicted the
following sales for the first four months of the current year:
Ending inventory for each month should be 20% of the next month’s sales, and the
December 31 inventory is consistent with that policy. How many units should be
purchased in February?
A.1,860
B.1,900
C.1,940
D.1,980
E.2,320
22) A company had inventory of 5 units at a cost of $20 each on November 1. On
November 2, it purchased 10 units at $22 each. On November 6 it purchased 6 units at
$25 each. On November 8, it sold 18 units for $54 each. Using the LIFO perpetual
inventory method, what was the cost of the 18 units sold?
A.$395
B.$410
C.$450
D.$510
E.$520
23) All of the following statements relating to accounting for international operations
are True except:
A.Foreign exchange gains or losses can occur when accounting for international sales
transactions
B.Gains and losses from foreign exchange transactions are accumulated in the Fair
Value Adjustment Account and are reported on the balance sheet
C.Gains and losses from foreign exchange transactions are accumulated in the Foreign
Exchange Gain (or Loss) account
D.The balance in the Foreign Exchange Gain (or Loss) account is reported on the
income statement
E.Foreign exchange gains or losses can occur when accounting for international
purchases transactions
24) Sales returns:
A.Refer to merchandise that customers return to the seller after the sale.
B.Refer to reductions in the selling price of merchandise sold to customers.
C.Represent cash discounts.
D.Represent trade discounts.
E.Are not recorded under the perpetual inventory system until the end of each
accounting period.
25) On March 31, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year
subscription for five different magazines. The subscriptions started immediately. What
is the adjusting entry that should be recorded by Melanie Publishing Company on
December 31 of the first year if the credit to record the collection was made to
Unearned Fees?
A.Debit Unearned Fees, $15,480; credit Fees Earned, $15,480
B.Debit Unearned Fees, $5,160; credit Fees Earned, $5,160
C.Debit Unearned Fees, $11,610; credit Fees Earned, $11,610
D.Debit Unearned Fees, $1,290; credit Fees Earned, $1,290
E.Debit Unearned Fees, $3,870; credit Fees Earned, $3,870
26) A company is considering the purchase of new equipment for $45,000. The
projected after-tax net income is $3,000 after deducting $15,000 of depreciation. The
machine has a useful life of 3 years and no salvage value. Management of the company
requires a 12% return on investment. The present value of an annuity of 1 for various
periods follows:
What is the net present value of this machine assuming all cash flows occur at
year-end?
A.$(1,768)
B.$3,000
C.$15,000
D.$18,000
E.$43,232
27) The following information is available for the Edwards Company for its March 31
bank reconciliation:
From the March 31 bank statement:
NSF: A check from a customer, Cook Co. in payment of their account.
IN: Interest earned on the account.
From the Edwards Company’s accounting records:
1> Based on the above information, prepare a bank reconciliation for the Edwards
Company.
2> Prepare the necessary general journal entries to adjust cash to the reconciled
balance.
28) Frado Company provides you with following information related to payroll
transactions for the month of May. Prepare journal entries to record the transactions for
May.
a. Recorded the March payroll using the payroll register information given above.
b. Recorded the employer’s payroll taxes resulting from the March payroll. The
company had a merit rating that reduces its state unemployment tax rate to 3.5% of the
first $7,000 paid each employee. Only $42,000 of the current months salaries are
subject to unemployment taxes. The federal rate is .8%.
c. Issued a check to Swift Bank in payment of the May FICA and employee taxes.
d. Issued a check to the state for the payment of the SUTA taxes for the month of May.
e. Issued a check to Swift Bank in payment of the employer’s quarterly FUTA taxes for
the first quarter in the amount of $1,360.
29) A profit center:
A.Incurs costs, but does not directly generate revenues
B.Incurs costs and directly generates revenues
C.Has a manager who is evaluated solely on efficiency in controlling costs
D.Incurs only indirect costs and directly generates revenues
E.Incurs only indirect costs and generates revenues
30) On September 1, a corporation had 50,000 shares of $5 par value common stock,
and $1,000,000 of retained earnings. On that date, when the market price of the stock is
$15 per share, the corporation issues a 2-for-1 stock split. The general journal entry to
record this transaction is:
A.Debit Retained Earnings $750,000; credit Common Stock Split Distributable
$750,000
B.Debit Retained Earnings $750,000; credit Common Stock $750,000
C.Debit Retained Earnings $250,000; credit Common Stock $250,000
D.Debit Retained Earnings $250,000; credit Stock Split Payable $250,000
E.No entry is made for this transaction
31) The adjusting entry to record the earned but unpaid salaries of employees at the end
of an accounting period is:
A.Debit Unpaid Salaries and credit Salaries Payable
B.Debit Salaries Payable and credit Salaries Expense
C.Debit Salaries Expense and credit Cash
D.Debit Salaries Expense and credit Salaries Payable
E.Debit Cash and credit Salaries Expense
32) Achieving an increased return on common stock by paying dividends on preferred
stock at a rate that is less than the rate of return earned with the assets invested from the
preferred stock issuance is called:
A.Financial leverage
B.Discount on stock
C.Premium on stock
D.Preemptive right
E.Capital gain
33) A record that contains all accounts (with amounts) of a company is the:
A.General ledger
B.General journal
C.Special ledger
D.Special journal
E.Column balance ledger
34) The segment return on assets:
A.Can only be determined for international companies
B.Reflects the profitability of a segment
C.Is difficult to calculate because companies with traded stock are not required to report
segment information
D.Is calculated as segment average assets divided by segment operating income
E.Is calculated as segment sales divided by segment average assets
35) Statements that show the effects of proposed transactions as if the transactions had
already occurred are called:
A.Pro forma statements
B.Professional statements
C.Simplified statements
D.Temporary statements
E.Interim statements
36) All of the following statements regarding a sales invoice are True except:
A.A sales invoice is a type of source document
B.A sales invoice is used by sellers to record the sale
C.A sales invoice is used by buyers to record purchases
D.A sales invoice gives rise to an entry in the accounting process
E.A sales invoice does not provide objective evidence about a transaction
37) Match each of the following terms with the appropriate definitions.
1>Days’ sales uncollected A. A report that explains any differences between the
checking account balance according to the depositor’s records and the balance reported
on the bank statement.
2>Receiving report B. An internal business document (or file) used to accumulate
information to control cash disbursements and to ensure that the transaction is properly
recorded.
3>Liquidity C. Principles requiring management to establish responsibility, maintain
adequate records, insure assets, separate recordkeeping from custody of assets, divide
responsibility for related transactions, apply technological controls, and perform
reviews.
4>Cash Over and Short D. A measure of the liquidity of receivables computed by taking
the current balance of receivables and dividing by the credit sales over the period, and
then multiplying by 365.
5>Net method E. The ability of a company to pay for its near-term obligations.
6>Purchase order F. A method of recording purchases at the full invoice price without
deducting any cash discounts.
7>Gross method G. A method of recording purchases at the full invoice price less any
cash discounts.
8>Voucher H. A document used by the purchasing department to place an order with a
vendor.
9>Bank reconciliation I. An internal document used to report that ordered goods are
received and to describe the quantity and condition.
10>Principles of internal control J. An income statement account used to record cash
overages and cash shortages arising from missing petty cash receipts or from errors in
making change.
38) Kala’s Latin American segment had revenues of $2,089 million, operating income
of $1,033 million, and average assets of $1,443 millions. The Latin American segment
return on assets is:
A.49.4%
B.69.0%
C.71.6%
D.139.7%
E.144.8%
39) Robert Haddon contributed $70,000 in cash and land worth $130,000 to open a new
business, RH Consulting. Which of the following general journal entries will RH
Consulting make to record this transaction?
A.Debit Assets $200,000; credit Haddon, Capital, $200,000
B.Debit Cash and Land, $200,000; credit Haddon, Capital, $200,000
C.Debit Cash $70,000; debit Land $130,000; credit Haddon, Capital, $200,000
D.Debit Haddon, Capital, $200,000; credit Cash $70,000, credit Land, $130,000
E.Debit Haddon, Capital, $200,000; credit Assets, $200,000
40) A product sells for $200 per unit, and its variable costs per unit are $130. The fixed
costs are $420,000. What is the break-even point in dollar sales?
A.$2,100
B.$6,000
C.$420,000
D.$646,154
E.$1,200,000
41) The potential benefits of one alternative that are lost by choosing another is known
as a(n):
A.Alternative cost
B.Sunk cost
C.Out-of-pocket cost
D.Differential cost
E.Opportunity cost
42) Preferred stock is often issued:
A.To initiate or increase financial leverage
B.To raise capital without sacrificing control
C.To appeal to investors who believe that common stock is too risky
D.To boost the return earned by common shareholders
E.All of these
43) The difference between sales price per unit and variable cost per unit is the:
A.Gross profit from sales
B.Gross margin per unit
C.Fixed cost per unit
D.Margin of safety per unit
E.Contribution margin per unit
44) A company had the following purchases during the current year:
On December 31, there were 26 units remaining in ending inventory. These 26 units
consisted of 2 from January, 4 from February, 6 from May, 4 from September, and 10
from November. Using the specific identification method, what is the cost of the ending
inventory?
A.$3,500
B.$3,800
C.$3,960
D.$3,280
E.$3,640
45) Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2.
Unit price and cost data are:
Total fixed costs are $340,000. The break-even point in sales dollars for the current
sales mix is (round to the nearest thousand):
A.$20,000
B.$289,000
C.$400,000
D.$629,000
E.$740,000
46) A $15 credit to Sales was posted as a $150 credit. By what amount is Sales in error?
A.$150 understated
B.$135 overstated
C.$150 overstated
D.$15 understated
E.$135 understated
47) The master budget process usually ends with:
A.The production budget
B.The sales budget
C.The selling expense budget
D.The budgeted balance sheet
E.The overhead budget
48) Cabot Company collected the following data regarding production of one of its
products. Compute the direct labor efficiency variance.
A.$13,000 favorable
B.$40,500 favorable
C.$53,500 favorable
D.$13,000 unfavorable
E.$40,500 unfavorable
49) On July 1 of the current year, a company purchased and placed in service a machine
with a cost of $240,000. The company estimated the machine’s useful life to be four
years or 60,000 units of output with an estimated salvage value of $60,000. During the
current year, 15,000 units were produced.
Prepare the necessary December 31 adjusting journal entry to record depreciation for
the current year assuming the company uses:
a. The straight-line method of depreciation.
b. The units-of-production method of depreciation.
c. The double-declining balance method of depreciation.
50) When graphing cost-volume-profit data on a CVP chart:
A.Units are plotted on the horizontal axis; costs on the vertical axis
B.Units are plotted on the vertical axis; costs on the horizontal axis
C.Both units and costs are plotted on the horizontal axis
D.Both units and cost are plotted on the vertical axis
E.Data points always represent expected future points
51) Balance sheet accounts are called ____________________ accounts because they
carry their balances to the next accounting period, and are not closed as long as the
company continues to own the asset, owe the liability and have equity.
52) Nichole Company had net sales of $500,000 and cost of goods sold of $350,000.
Calculate Nichole’s gross profit.
53) The comparison of a company’s financial condition and performance to a base
amount is known as ___________________________.
54) A relatively new form of business organization that protects partners with limited
liability, allows limited partners to assume an active management role, and is taxed as a
partnership is a _____________________________.
55) _______________ are reports where financial amounts are placed side-by-side in
columns on a single statement for analytical purposes.
56) A company’s employees had the following earnings records at the close of the
current payroll period:
The company’s payroll taxes expense on each employee’s earnings includes: FICA
Social Security taxes of 6.2% on the first $106,800 of earnings plus 1.45% FICA
Medicare on all wages; 0.8% federal unemployment taxes on the first $7,000; and 2.5%
state unemployment taxes on the first $7,000. Compute the employer’s total payroll
taxes expense for the current pay period.
57) Bonds payable to whoever holds them are called _________________ bonds.